Esma Initiates the Introduction of a Single Limit Order Cap in MiFIR Assessment
The European Securities and Markets Authority (ESMA) is set to introduce a significant change in the way trading volume limits are managed in the European Union (EU) equity markets. In October 2025, the authority will switch from the current Double Volume Cap Mechanism (DVCM) to a Single Volume Cap Mechanism (VCM) as mandated by the Markets in Financial Instruments Regulation Review (MiFIR Review).
This transition marks a key modernisation effort aimed at unifying trading volume limits across the EU, improving data quality for volume cap calculations, and enhancing market transparency and fairness.
Under the new VCM, trading venues will be allowed to execute up to 7% of an equity or equity-like instrument's total annual trading volume under the reference price waiver. If this threshold is exceeded, the trading venue must suspend the use of the waiver for that instrument for three months.
This shift from double to single cap aims to streamline the market structure, reduce fragmentation, and provide a clearer, level playing field for assessing dark trading activity, which is trading that is not publicly displayed until after execution.
Another key implication of the VCM is the transition from relying on trading venues’ reported data to transaction reporting data collected by National Competent Authorities (NCAs). This change is expected to enhance data quality and consistency, reduce the reporting burden on venues, and improve supervisory oversight.
The current DVCM reporting system will be decommissioned by January 2026. ESMA is preparing new data systems, formats, and templates for the VCM, with the first set of volume cap calculation results to be published on 9 October 2025.
The shift is seen as a clear signal of ESMA's intent to streamline the European equity market structure, as stated by Mark Montgomery, chief commercial officer at capital markets analytics firm big xyt. It also aims to simplify trading restrictions and enhance transparency in the European equity market.
The new VCM data system will provide institutional investors with a better understanding of pan-European trading activity across both lit and dark venues. This increased transparency should support greater efficiency in EU equity markets, providing institutional investors with clearer insights into pan-European trading activity.
The MiFIR Review is part of a wider push to simplify how markets work, improve investor protections, and ensure fairer access to data and trading across Europe. The regulatory shift supports these goals by promoting greater transparency and efficiency in EU equity markets.
Firms and trading venues are encouraged to prepare for the Q4 implementation of the new VCM data system to ensure operational compliance. This operational change stresses the importance of robust data systems and cooperative oversight between venues and regulators.
In conclusion, ESMA's move to the single volume cap mechanism under MiFIR Review represents a significant step towards modernising the EU's financial markets rulebook, aiming to create a more level playing field, reduce fragmentation, and enhance market transparency and fairness. The transition requires significant preparation by trading venues and regulators to adapt to new data sources and suspension rules tied to the 7% volume threshold.
The European Securities and Markets Authority's (ESMA) transition from the Double Volume Cap Mechanism (DVCM) to a Single Volume Cap Mechanism (VCM) in the European Union (EU) equity markets in October 2025 is expected to improve data quality for volume cap calculations, reduce fragmentation, and provide a clearer, level playing field for investing in the industry. Under the new VCM, trading venues will have to suspend the use of the reference price waiver if their trading volume exceeds 7% of an equity or equity-like instrument's total annual trading volume. This regulatory shift in the finance sector supports the MiFIR Review's goals of simplifying markets, improving investor protections, and ensuring fairer access to data and trading across Europe. Firms and trading venues are encouraged to prepare for the Q4 implementation of the new VCM data system to maintain operational compliance and adapt to new data sources and suspension rules.
